As living expenses mount and inflation hits your income, you may be starting to worry about the future. After completing all your family obligations, you wonder if you will have enough savings set aside for your retirement. If your savings prove to be insufficient or you do not have any regular income after your retirement, you could face financial uncertainty after retirement but not if you invest in an annuity plan.
What is an annuity?
An annuity is an arrangement wherein an insurer pays a regular amount to you over a period of time, usually lifelong. This payment is in lieu of a lump sum payment made by you. The goal of annuities is to provide a steady stream of income post retirement.
It is a plan that secures your retirement years against financial uncertainty, so that your savings need not be disturbed and you don’t get into debt in order to continue your lifestyle.
The annuity plan does not prescribe a certain retirement age – you can choose to opt for an annuity plan as early as 40 or 45 and start getting the plan benefits. The plan assures you of an annuity for the rest of your life, moreover you can also ensure that your spouse is also covered by opting for a joint life annuity option. While the interest rates keep fluctuating, the biggest benefit of an annuity is locking in the rates for a lifetime. Thus, you can retire with complete peace of mind with your daily needs taken care of by the annuity plan. This is how you can buy the best annuity plan for your future:
How to Invest in Annuity
Step 1: Pick the right annuity plan.
The kind of plan you pick depends on your potential age of retirement and the type of pay-out you want. There are two types of annuities: Immediate Annuity and Deferred Annuity.
- In an immediate annuity, a person begins to receive the payments soon after the initial investment is done.
In deferred annuity, the money gets locked in for a certain period of time before the payments are made.
Step 2: Pick the right annuity option.
Most insurers offer multiple annuity options to choose from. There are options that offer annuity for a single life (you) or joint life (you and your spouse). Also, there options to take annuity payouts and get a refund of the purchase price (full or part), as well as riders to choose from . The purchase price is the premium (lumpsum amount) paid by you to the insurer. Some plans also offer the flexibility to increase the annuity payouts annually.
You can use an annuity calculator, available online,to check the pay-outs available for each scenario and choose the one that suits your requirementsthe most.
Step 3: Research the plan's features.
The plan must offer a good mix of benefits for you. Broadly, it should have benefits for your partner in case of your untimely demise and the option to choose the pay-out method (Monthly, Quarterly, Half-yearly or Yearly). An Annuity plan comes with comprehensive benefits such as:
- Security with regular retirement income
- Benefits to both the policy holder and the spouse
- No limit on maximum annuity payout
- Multiple annuity options to suit your needs
- Incentives of higher annuity rates for large purchase price.
- Flexibility to advance your Annuity payouts.
Step 4: Apply for the plan.
You can complete the process of investing in an annuity plan online or by visiting a physical branch of the company. It is a simple process that can be completed in minutes. That is all. Now you are financially secure for the time when you are no longer actively employed
Thus, picking the right annuity plan can help you and your spouse live out your retirement years in peaceful contentment.
How Different Types of Annuities Work
Different types annuity options work in different ways and offer benefits during your lifetime, unlike life insurance.
- Lifetime Income: This type of annuity offers you regular pay-outs (Annually, Quarterly or Monthly) as long as you are alive. The pay-outs stop on your demise.
Lifetime Income with Capital Refund: Here too, you receive the pay-outs as long as you live. Following your demise, the initial investment amount is paid by the insurer to your nominee. This is the amount you paid to purchase the annuity plan. This helps you leave something for your family, just like life insurance.
Lifetime Income with Annual Increase: This type of annuity accounts for the inflation rate by increasing the payable amount by a pre-determined amount, such as 2% or 4%. Although it might not reflect the actual inflation rate in the country, it helps to take care of the rising costs that you might face.
Lifetime Income with Certain Period: Thismeans that you will receive the pay-outs for a guaranteed time period, such as 5, 10, 15 or 20 years. Pay-outs will be terminated at the end of the guaranteed period or when the annuitant dies.
You can also choose to buy a plan with jointly with another family member, such as a spouse. Here, the pay-outs will continue till one of the two people are alive. In case you choose the capital refund option, when both people who are part of the plan die, the initial purchase amount will be refunded to the nominee.
Q.1. When can you withdraw money from an annuity?
You can withdraw money from an annuity under certain conditions, pre-defined in your plan. For instance, if you are diagnosed with a critical illness covered under the terms and conditions of the plan. There also are plans that return all or part of the initial investment amount to the nominee on the death of the policy holder. Check how to buy an annuity plan best suited to your needs before making a final purchase.
Q.2. Is there an age limit for annuities?
While different companies might have different age limits. Most companies have a minimum age of 20 years and a maximum age of 100 years for buying such a plan. However, it is recommended to invest as soon as possible to reap maximum benefits.
Q.3. Are annuities good for senior citizens?
Immediate annuity can be a great way for senior citizens to gain financial independence. With this type of plan, all the senior citizen needs to do is make a one-time payment and then receive regular income throughout their lifetime. This way, they can ensure financial security in old age. With various options to choose from, they can choose a plan that best suits their financial needs.
Q.4. What happens to my annuity if I die?
Once you know what is annuity and how to invest in annuity, it is also important to know what happens when the policy holder dies. It all depends on the type of annuity plan that you buy.
- Lifetime Income: You get regular pay-outs as long as you are alive. The pay-outs stop on your demise.
- Life Income with Capital Refund: You receive pay-outs as long as you live. Following your demise, the initial investment amount is paid to your nominee.
- Lifetime Income with Certain Period: Thismeans that you will receive the pay-outs for a guaranteed time period. Pay-outs will cease at the end of this period or when the annuitant dies.
Q.5 How to calculate annuity with annuity calculator?
Choosing the right annuity plan becomes easy with an annuity calculator. All you need to do is:
- Fill in your date of birth andwhether the plan is for Self or Self + One Life.
- The type of plan chosen, such as Lifetime Income, Lifetime Income with Capital Refund, Lifetime Income with Annual Increase or Lifetime Income with Certain Period.
- Payment options, such as the amount you would like to receive and whether you want the pay-outs yearly, quarterly or monthly.
- The date on which you would like to start receiving the pay-outs.
- Whether you would need advance pay-outs.